Correlation Between SCE Trust and CenterPoint Energy

Can any of the company-specific risk be diversified away by investing in both SCE Trust and CenterPoint Energy at the same time? Although using a correlation coefficient on its own may not help to predict future stock returns, this module helps to understand the diversifiable risk of combining SCE Trust and CenterPoint Energy into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between SCE Trust VI and CenterPoint Energy, you can compare the effects of market volatilities on SCE Trust and CenterPoint Energy and check how they will diversify away market risk if combined in the same portfolio for a given time horizon. You can also utilize pair trading strategies of matching a long position in SCE Trust with a short position of CenterPoint Energy. Check out your portfolio center. Please also check ongoing floating volatility patterns of SCE Trust and CenterPoint Energy.

Diversification Opportunities for SCE Trust and CenterPoint Energy

-0.67

Correlation Coefficient

SCE Trust  CenterPoint Energy

Excellent diversification

The 3 months correlation between SCE and CenterPoint is -0.67. Overlapping area represents the amount of risk that can be diversified away by holding SCE Trust VI and CenterPoint Energy in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on CenterPoint Energy and SCE Trust is a relative statistical measure of the degree to which these equity instruments tend to move together. The correlation coefficient measures the extent to which returns on SCE Trust VI are associated (or correlated) with CenterPoint Energy. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of CenterPoint Energy has no effect on the direction of SCE Trust i.e., SCE Trust and CenterPoint Energy go up and down completely randomly.

Pair Corralation between SCE Trust and CenterPoint Energy

Assuming the 90 days trading horizon SCE Trust VI is expected to under-perform the CenterPoint Energy. But the preferred stock apears to be less risky and, when comparing its historical volatility, SCE Trust VI is 1.02 times less risky than CenterPoint Energy. The preferred stock trades about -0.05 of its potential returns per unit of risk. The CenterPoint Energy is currently generating about 0.26 of returns per unit of risk over similar time horizon. If you would invest  3,230  in CenterPoint Energy on February 3, 2025 and sell it today you would earn a total of  669.00  from holding CenterPoint Energy or generate 20.71% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Weak
Accuracy	100.0%
Values	Daily Returns

SCE Trust VI  vs.  CenterPoint Energy

SCE Trust VI

Risk-Adjusted Performance

Very Weak

Over the last 90 days SCE Trust VI has generated negative risk-adjusted returns adding no value to investors with long positions. Despite quite persistent technical and fundamental indicators, SCE Trust is not utilizing all of its potentials. The recent stock price mess, may contribute to short-term losses for the institutional investors.

CenterPoint Energy

Risk-Adjusted Performance

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in CenterPoint Energy are ranked lower than 20 (%) of all global equities and portfolios over the last 90 days. Even with relatively unsteady basic indicators, CenterPoint Energy reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with SCE Trust and CenterPoint Energy

The main advantage of trading using opposite SCE Trust and CenterPoint Energy positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if SCE Trust position performs unexpectedly, CenterPoint Energy can make up some of the losses. Pair trading also minimizes risk from directional movements in the market. For example, if an entire industry or sector drops because of unexpected headlines, the short position in CenterPoint Energy will offset losses from the drop in CenterPoint Energy's long position.

The idea behind SCE Trust VI and CenterPoint Energy pairs trading is to make the combined position market-neutral, meaning the overall market's direction will not affect its win or loss (or potential downside or upside). This can be achieved by designing a pairs trade with two highly correlated stocks or equities that operate in a similar space or sector, making it possible to obtain profits through simple and relatively low-risk investment.

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Note that this page's information should be used as a complementary analysis to find the right mix of equity instruments to add to your existing portfolios or create a brand new portfolio. You can also try the Idea Optimizer module to use advanced portfolio builder with pre-computed micro ideas to build optimal portfolio .